31 Jul Market Update – Summer 2019
We have seen good performance this year from US (United States) large stock and bond markets which have made up for the losses from last year. This is good news, however it does not explain the full picture as many other investments have continued to under-perform and experience losses over the last couple years. As we have been discussing, full faith in a diversified portfolio that contains international investments and commodities has been a disappointment. The data continues to raise suspicion with the common accepted knowledge of the standard diversified portfolio.
It is common knowledge among advisers and professionals that clients should be placed into investment portfolios that contain numerous investment categories such as US stocks and bonds, international stocks and bonds, emerging markets, real estate, oil and other commodities, etc… The supposed thought is that holding various investments will reduce risk and potentially increase return. Sounds like a great sales strategy and story, however this appears to be a purely academic exercise in thinking.
The United States continues to have the best performing markets over any time period along with the most stable economy. US bonds are the safest and have some of the highest interest rates, while many places like Europe have poor growth rates and negative interest bond rates. Europe markets continue to languish along with emerging markets. So why would advisers continue to blindly place their clients’ money in these assets?
We have been wrapping our brains around this question for some time and the best answer we can formulate is one must be able to think for themselves and not swallow the sales pitches that are continually placed in front of them by so called experts. This is a difficult exercise and one we have learned to take to heart. We have made these mistakes before by believing that someone else (another expert) had the answer. All we needed to do is follow along. This thinking is incorrect. We make the decisions that we think are best for our clients and their money, not what someone else thinks is correct. We will be right and we will be wrong, nevertheless we make choices with the sincerity of our own minds. This means we do not have a scapegoat to blame when things do not work out as intentioned. Few professionals in our industry can say that.
We have believed over the last year or so that sticking with a US based portfolio is the right thing to do. This has been correct. Where we could have done a better job is to allocate a higher percentage to large US stocks, which has been the best investment. Even small US stocks have struggled recently. Only a fool can think that they will get every decision right when it comes to investing. The best that we can hope for is a decent outcome that protects our clients and makes some money along the way.
Now onto to the charts to explain our thinking:
Large US stocks have recovered last year’s losses and made new highs. This is the exception.
Small US stocks have been flat over the last year and a half.
Major economy international stocks (Europe, Japan) have been flat to down over the last year and a half.
Emerging market stocks are down the last couple years.
Oil has been erratic and has not performed well.
US treasury bonds have had a good year after having trouble in 2018.